Third Quarter Profits Go Flat for Pepsi Bottling Group

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Pepsi Bottling Group Incorporated (NYSE:PBG) (PBG) (Somers, New York) released its earnings report for the third quarter of 2008 on September 30. The quarter, which ended September 6, showed an 11% drop in net profits from the same period last year. Net income for the quarter was $231 million, compared with $260 million last year. In addition to facing rising prices of ingredients and transportation, PBG's volume of sales dropped significantly throughout the world. The company, which is the world's largest manufacturer and distributor of Pepsi brand drinks, operates in the U.S., Canada, Greece, Turkey, Mexico, Russia and Spain. Pepsi products distributed by PBG include such popular brands as Dole juices, Starbucks coffee beverages, Mountain Dew, Aquafina water and Lipton iced tea. In 1999, PBG split from PepsiCo Incorporated (NYSE:PEP) (Purchase, New York) and became a publicly traded company.

Worldwide, the volume of cases sold by PBG fell 6%. Volume fell 6% in the U.S., Canada, and Europe, and declined 9% in Mexico. Nevertheless, PBG's President and CEO Eric J. Foss, in a conference call discussing the company's quarterly earnings, emphasized the potential for large growth in the markets of Russia, Turkey and Mexico. "Our international business represents 30% of our revenue and profits," said Foss, "but from 2005 to 2007, it accounted for 50% of our revenue growth and 60% of our profit growth." Foss described the population of Turkey as "large, young and growing," saying, "About 50% of Turkey's 75 million people are under the age of thirty, so there's a clear opportunity to grow our business." Foss also said that Mexico and Russia provided markets that could lead to significant growth. "Taken as a whole, these three countries provide clear opportunities for sustainable success."

In addition to its goal to expand abroad, PBG is also adding to its facilities and markets in the U.S. Last week, PBG announced plans to acquire Lane Affiliated Companies (Colorado Springs, Colorado), the eighth-largest bottler of Pepsi products in the U.S. The move will extend PBG's reach into Arizona, New Mexico and Colorado. Also, construction of a grassroot bottling plant in Las Vegas, Nevada, is scheduled for completion this month. The 427,000-square-foot plant will have three production lines for soft drinks and bottled water and has an estimated total investment value of $101 million. Gray Construction Company (Lexington, Kentucky) is acting as general contractor on the project.

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